Topline
The Federal Reserve is favored to hold interest rates steady on Wednesday in Kevin Warsh’s first policymaking move as the central bank chair, as a reshaped Fed featuring former chair Jerome Powell as governor is expected to hike rates this year.
Trump signaled he would allow his new Federal Reserve chair to “do what he wants to do.”
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Key Facts
Traders have priced in nearly 100% odds of the Federal Open Market Committee holding interest rates between 3.5% and 3.75%, CME Group’s FedWatch tool indicates, matching consensus analyst projections, according to FactSet.
Betting markets also guarantee there will be no change: Polymarket placed 100% odds of interest rates being held, and Kalshi projected 99% odds that rates will be held between their current range.
During the FOMC’s last meeting in April, a “majority” of Federal Reserve officials stressed that a rate hike may be appropriate if inflation persisted above the central bank’s 2% goal, and a majority stated there is an “increased risk” that inflation will take longer to return below that threshold than previously expected.
what to watch for
Several analysts believe the Federal Reserve will withhold its “dot plot,” a graph outlining the central bank’s policymaking decisions, as Warsh has criticized the plot for limiting the Fed’s decision-making. “The Fed tells the whole world what their dots are going to be, what their forecasts are going to be,” Warsh said during his confirmation hearing in April, arguing “incremental deliberation can keep the central bank from compounding its errors.” In a note, Goldman Sachs analyst David Mericle wrote that the firm assumes that “Warsh will not submit dots in light of his past criticism of forward guidance, but we are not sure.”
what has kevin warsh said about interest rates?
Warsh told the Senate Banking Committee in April that President Donald Trump never asked him to commit to interest rate cuts and that Trump “didn’t demand it.”Adita Bhave, Bank of America Securities’ head of U.S. economics, wrote in a note earlier this year that Warsh’s outlook for interest rates was “much more consistent with an extended hold than additional cuts.” Trump, in a reversal from earlier comments that he would be disappointed if Warsh did not cut interest rates, said last month he would let Warsh “do what he wants to do.”
key background
Former Fed governor Warsh opens his term leading the central bank following a contentious nomination process and a surge in inflation that will likely deter officials from lowering interest rates. Consumer prices increased 4.2% annually in May, marking the first time inflation crossed the 4% annual rate since May 2023 and the highest rate since April 2023. A boost in inflation thanks to soaring oil and gas prices brought on by the Iran war, as well as better-than-expected employment data for May, pushed markets to favor an interest rate hike by December at nearly 60% odds. The meeting will also feature Powell, the former Fed chair who was criticized by Trump for being “too slow” to reduce rates, as a Fed governor. Powell said during the FOMC’s latest meeting he would remain as governor with two years left on his term and stay for a “period of time to be determined.”